The Government’s investments will be managed on a commercial basis by a new arm’s-length company, ‘UK Financial Investments Limited’ (UKFI), which is wholly owned by the Government. Its overarching objectives will be to protect and create value for the taxpayer as shareholder…
UKFI of course differs from other funds “managed on a commercial basis” in one important respect, it is unable to sell underperforming assets, and underperform they have, destroying value for the taxpayers as shareholders.
Barclays took petro-dollars to recapitalise, so could and should have these banks. Northern Rock should have been put into receivership and whatever was of value sold to other banks. Instead, somewhat pointlessly, taxpayers have been lumbered with an £8 billion loss to date. The government is no better at investing in banks than it was at investing in British Leyland.
Instead of being lost in the stock market, £8 billion could have been used to raise tax thresholds by £1000 per income taxpayer for a year with plenty leftover. Helping those on lower incomes the most.
“BBC political editor Nick Robinson said the fact that a series of countries now look likely to implement packages of tax cuts and spending increases would allow Mr Brown to claim the UK is in the lead when it came to dealing with the economic crisis.”
- The U.S. fiscal stimulus plan worth $150 billion went into play in February with bi-partisan support.
- The Chinese stimulus package is a $586 billion public works acceleration plan announced last week.
- The German Cabinet approved a stimulus package weeks ago, as did the French.
- Australia’s second stimulus package was announced last month – though they have the advantage of a massive budget surplus after a decade of Conservative economic policies.
- Spain’s fiscal stimulus package was announced in April.
- Conservative run Canada also has for years run a budget surplus and remains determined to balance the budget and cut taxes.
- Japan has been doing fiscal stimulus for two decades.
- To present himself as the respected elder statesman of international finance – never mind Sarko’s pretensions.
- To frame Britain’s problems in an international context. Sterling’s collapse is to be spun as nothing to do with Brown’s bubble.
- To frame any domestic tax cut U-turn as a co-ordinated international action. This will give him cover for abandoning everything he has told us is important for all his front-bench political life.
Why Gordon thinks it imperative to be portrayed as some kind of respected international finance genius eludes Guido. It won’t save anyone’s job, not even his own.
There is obviously an international angle to the credit crunch, but there are also domestic disasters which happened on his watch.. Sterling’s collapse is not random. Who for instance decided to exclude house prices from the Bank of England’s inflation target which meant we had a ridiculously loose monetary policy?
If the G20 endorses a policy of tax cuts – if – Gordon will have political covering fire to return to Westminster to cut taxes and bugger the deficit. The Pre-Budget Report on Monday week will be his chance to unveil an epic tax-cutting stimulus package U-turn. The Osborne-Letwin* designed response as it stands will be “we shouldn’t be here, you shouldn’t do that”. Preaching fiscal sobriety to the fiscally hungover after the party has finished and the house is already wrecked.
The Tories have boxed themselves into holding to a Brown orthodoxy on tax cuts to which he himself no longer adheres. Time to think outside of the box…
*Letwin’s aversion to tax cuts might have something to do with the 2001 election campaign fiasco when as a junior finance spokesman, he was forced into hiding after disclosing that the Tories had longer-term plans for £20 billion of tax cuts.
Are we now at the dead end of the New Labour era and Mugabenomics is a serious policy option? This is madness.
Alan Layng, a co-conspirator, sent Guido this neat piece of research* :-
I took UK stock market performance since 1902 assuming reinvested income and adjusting down for cost of living to give real terms equity market growth for each of the last 106 years.
I matched this up to the dates of each of the twenty prime ministers who have run this country since 1902 (interpolating to the right dates as required). This gave me a proxy for how much the equity markets had risen (or not) under their stewardship.
From there, it is a small hop to a comparable figure – compound annual growth rates – and, hey presto, we can compare the financial performance of each of prime ministers, and also of the parties, to see if one party has a better long term track record.
It makes interesting reading.
This policy idea is, Cameron admitted, more of a think-tank style Pre-Budget Report submission. The Tories like to boast that their policy ideas get nicked by Brown and they get to implement policy by proxy. Gordon has already rejected this one.
So no income tax cut for breakfast, but the Tories were dishing out bacon sarnies as a consolation prize.
Danny says the Tories will be “destroyed” if they advocate tax cuts, that is ridiculous, on the contrary they will be damaged if they do not. It seems to Guido that the Tories have finally realised that Fink is wrong, the old position is not right for now, the voters have moved on. One wonders if Osborne would have reached this point faster without the siren voice of his old friend. Now Nick Clegg, not the Tories, will be able to claim with some justice to have set the agenda.
[Guido also hears that the Speccie will this week be reporting Nigel Lawson claiming that he was misquoted on taxes – he is in favour of an immediate tax cut, so long as it is responsible.]
The FT reports that the Commission is forecasting EU growth will slow from 1.4% cent this year to just 0.2% in 2009, while the eurozone economy would expand by 1.2% this year and only 0.1% in 2009. Among the EU’s largest economies, the UK would be the worst performer next year, when its economy would contract by 1% the Commission forecast.
Spin that Gordon…
The Fink had a go at “punk tax cutters” yesterday despite always claiming that he is in favour of lower taxes (in the long term) – it is just that those pesky voters don’t believe politicians who promise them – so don’t promise tax cuts – is his argument. Well a new poll from ComRes suggests he is wrong and that if a credible politician made a credible promise, it would be popular. It found that:
- 67% of people now think we are paying the price for government overspending.
- 59% of people agree tax cuts would be a better response to the downturn than increased public spending. Only 18% disagree.
- 68% supported an immediate and substantial cut in interest rates.
- 67% agreed that Gordon Brown should take a 10% pay cut.
Guido started writing boom to bust pieces in September 2007, Fred Harrison, the Renegade Economist, made his prescient call on the property market in 2005. His 2005 book has just been re-printed, Boom Bust: House Prices, Banking and the Depression of 2010.
He has also produced this video accusing Gordon Brown of covering up his cupability. It is apparently the first in a series. Fred’s diagnosis is interesting, Guido is not sure however that his tax reform proposals are that appealing. Definitely worth seven minutes of your time.
As well as the fun of asking Gordon a question that will undoubtedly be seen by tens of thousands of co-conspirators, Guido will throw in an extra prize of his own to the video submission he judges best- two tickets to the preview screening of Frost Nixon – An Epic Battle for Truth in London next week. The prize includes the opportunity to quiz the screenwriter and producer Peter Morgan afterwards. The film dramatises how three years after being forced from office, Nixon remained silent. But in summer 1977, the steely, cunning former commander-in-chief agreed to sit for one all-inclusive interview to confront the questions of his time in office and the Watergate scandal that ended his presidency.
This competition requires you to be Frost and ask the question that confronts Gordon about how his handling of the economy will end his Premiership. Go here for instructions on how to upload your question for Gordon, then email Guido the link to your video when you have uploaded it and Guido’s geeks will copy it – just in case Downing Street tries to erase your question in the same way Nixon wanted to erase those tapes. Gordon increasingly reminds Guido of Nixon…
This has one benefit, it helps exporters. However Britain runs a current account deficit and imports more than it exports. Key commodities are priced in dollars, so although oil has fallen 50% in price, the fall in the pound against the dollar means that that benefit is reduced by 25%.
The reason the pound is falling is because foreign investors don’t want to hold sterling assets. Money supply (M4) is off the chart, the government is flooding the debt markets with cash, gilt issuance is going to be a massive £100 billion, the government is still a AAA risk for now, but so were many investment banks until recently. Nobody believes Gordon’s “we have reduced government debt” routine, it is laughable, where did the money for all the schools, hospitals, quangoes and bureaucrats come from Gordon? Include all the taxpayers liabilities and UK government debt is up there with Italy at over 100% of GDP.
There is a lot of scepticism about Gordon’s borrow more, spend more solution. It will be years before any capital infrastructure spending will come through to the real economy, it will worsen the government’s indebtedness and crowd out the private sector. The Tories seem incoherent and without a macro-solution, a little help here and there for small business isn’t going to turn around the economy. “Sound money and economic responsibility” is all very well, if that had been government policy rather than just an opposition slogan we might not be in this mess. It has come to something when the LibDems offer voters more in tax cuts than the Tories. Today Britain desperately needs a real growth package for the real economy. The Tories are too timid and scared of the old Labour attack lines. Voters understand that government spending has to be tightened, Clegg senses that too, why not the Cameroons?
The BBC’s business editor is focusing on political gossip. Guido will therefore have to take up the slack on the business reporting front…
The Irish ruling elite realise that they need to show leadership by example in tough times.
Will British politicians follow suit? After all their pension’s profited from short selling. Will they get their snouts out of the hard-pressed taxpayer provided gold-plated troughs? Perhaps some of the senior executives at the BBC could follow the example of their counterparts at the Irish state broadcaster? They all want the bankers to sacrifice their bonuses, but don’t the Chairman of the FSA and the Governor of the Bank of England need to make sacrifices? It is not as if they have been brilliant at bank regulation. If they were all paid on a performance-related basis they should be losing 30% or more – the same as the stock market has cost pensioners…
Vince Cable is ignored on the ground shouting random directions to attract attention from the crowd. Little can be done to avoid Gordon claiming credit and to be fair, his contemporary version of the Swedish bail-out model was better than the Paulson Plan Mk 1. The Tories plan in their attack to hold off until recession bites and then point the public towards Gordon and give him the credit he deserves for the magnitude of the bust.
Might work, though Gordon will try to pass the buck as ever, blaming Iceland or the non-appearance of the tooth fairy for Britain’s woes. The triumphalism of this week may fade from the public’s memory pretty quick. Danny Finkelstein has nailed it to Gordon, “If this is a triumph, I’d hate to see a disaster“. Fink’s argument needs to be re-scripted in populist form.
In a month or so attack videos need to replay Gordon intoning an end to “boom and bust” over and over again at different times in different ties, than replay him asking last week “has another bank gone bust?”, zooming in slow motion on to that, for once, authentic smile. As recession brings unemployment and repossessions, his self confession to presiding over the age of irresponsibly low interest rates and a failed regulatory regime he designed needs to be drummed into voters – along with Gordon’s smile of triumph amidst disaster.
Billions in future tax payments are being risked to bankers. They are supposed to pay back the debt to the Treasury when things pick up. Hopefully.
The economy won’t pick up until the housing market picks up. Kick-starting the housing market is going to take one helluva kick. In America Obama is talking about a 90-day moratorium on home repossessions and McCain is advocating government-backed mortgage rescheduling, another policy idea doing the rounds is giving home buyers $15,000 tax relief, effectively making a mortgage deposit tax deductible.
Something glaring that strikes Guido as unfair in the British tax system* is that whereas the bank corporations will be able to deduct loan interest payments from their tax bills, individuals can’t. Why not bail-out homeowners too by making their mortgage interest payments tax deductible? Consumers are feeling the pinch, if they could claim the same tax relief that the bankers will, they would spend it and boost the economy. Boosting the economy is key to keeping the recession short. Unlike the banker bail-out this isn’t a handout from taxpayers, it lets taxpayers keep their money flowing into the economy.
*Gordon took away mortgage interest tax relief in 1999.
UPDATE : The comments below from some call this proposal neo-Keynesian, suggest it would re-flate the housing bubble and call it a middle-class subsidy.
The idea that people should be taxed less to promote spending growth is pretty straight forward. Keeping people’s earnings in their pocket to spend promotes growth in a much healthier way than the government taxing their earnings more to spend inefficiently. Some people fetishisise taxes as if they were a good thing in and of themselves. The property market is not going to bubble again in our lifetimes, have no fear. A subsidy is what public sector tenants have, taking less in taxes off people is not subsidising them.
UPDATE 17.50 : From the comments, going around the City:
[…] Read the rest
To all staff in the London Office
We have been informed by the City of London Police that a protest against financial institutions in the City will be taking place from about 3.00 pm till 6.00pm tomorrow.